TechsPlace | One of the biggest issues businesses face nowadays is struggling with the finances. The fact of the matter is that a single financial mistake can either halt your business operations for a prolonged period of time or ruin it altogether. Many startups and small business fail in first five years due to financial issues. As a matter of fact, 8 out of 10 businesses fail in anywhere between 16 to 18 months because of the lack of funds required to further support their business.
That’s why it’s important to handle finances properly and ensure your small business has a chance of becoming a successful enterprise one day. However, that’s easier said than done. The main reason is that you never know for sure how your business will perform nor will it come across a rough patch. Still, you must plan carefully and have a backup plan ready, in case something does go wrong. Here are few things you can do when your small business gets into financial trouble.
Create a Financial Plan
Financial planning is one of the key elements of running a successful small business. Having a financial plan allows you to track both incomes and expenses, as well as mitigate risks in financially difficult situations. Most importantly, it allows you to have a better understanding of the overall business capital you possess and how you can manage it more effectively.
For instance, a small business with positive revenue can still go bankrupt if you have no means of tracking your incomes and expenses or if you don’t have a positive cash-flow. The amount of income you have is not the same as available funds. You must consider, operating costs, production costs, taxation, utility and maintenance bills among other things, in order to understand where you stand from a financial point of view. That’s why, it’s important to have a well developed financial plan.
Improve Your Cash Flow
As mentioned before, a small business with good revenue can easily go bankrupt if they don’t have a positive cash flow. As an example, let’s say you sell your products to consumers and allow them to pay you via invoicing. Now, invoices can take anywhere from 30 to 120 days before you can collect payment. During that time, you have to pay your employees, suppliers and pay your bills, but you don’t have cash until invoices are due.
That’s why cash-flow is so important for your business. Fortunately, there are many ways you can improve it. For instance, cut spending, sell invoices for a small fee, get more revenue streams and so on. You could also apply for a loan, but banks may deny you or charge you extra high interest rates if your credit score is bad. In that case, you can also consider personal loans as an option, especially since they are more flexible towards businesses with a bad credit history.
Seek Outside Investment
Running into financial struggles doesn’t mean your business is doomed to fail. For example, you can look to start a partnership with another business, seek investment from angel investors or venture capitalists (VC) and perhaps even be eligible for government grants, depending on the nature of your business. Keep in mind that angel investors and venture capitalists mostly invest in startups, but they are also known to support early-stage small businesses as well.
The main difference is that angel investors may ask around 25% return on investment for their support, while VC’s look for shares of your company in return for their investment. On the other hand, government grants are awarded to businesses that meet certain criteria, qualifications and requirements, such as focus of your business being on research and development, science and so on. Make sure to check if your business is suitable for a grant, because grants either don’t have to be repaid or require only a small portion to be repaid.
Spend Money to Make Money
When dealing with financial issues, it’s important to be proactive and act upon it immediately. In some cases, prioritizing your expenditures can save you from financial problems. Simply put, invest smart in order to prevent difficulties or, in other words, spend money to make money. Some investment opportunities may yield a considerable return on investment, but they’ll only work if you seize the opportunity right away.
Anything that can instantly bring you improved performance, productivity or market penetration is a good investment. A good example is investing in marketing. With a right marketing strategy and a good marketing campaign, you can improve your visibility, extend your reach and attract more customers. The better your exposure due to marketing efforts, the more opportunities you create for your business to grow. That way, you’ll be able to financially support your business and keep it afloat as well.
Financial struggles are not uncommon in the business world. Startup and small business owners have the most trouble with finances. The main reason is that they’re trying to develop their business, while trying to make a name for themselves on the competitive and crowded market. Nevertheless, with a bit of careful planning, you can effectively manage finances and ensure business success.